PARIS: Production cutbacks by Opec nations are building a supply cushion that could be called upon to mitigate a possible supply shock from an abrupt drop in crisis-hit Venezuela’s output, the IEA said Friday.
With a nationwide blackout that paralysed the country for one week, demonstrating the unreliability of the country’s electricity network, new questions are being raised about Venezuela’s ability to continue to produce and export oil, report agencies.In its latest monthly report, the Paris-based International Energy Agency said that Venezuela’s oil industry operations were seriously disrupted by the blackout and warned that “ongoing losses on a significant scale could present a challenge to the market”.
Venezuela’s oil output has long been on a downward spiral thanks to years of underinvestment and mismanagement, with stepped-up US sanctions further trimming exports.
However the IEA also noted that Venezuela’s current oil production of about 1.2 million barrels per day (bpd) is the size of production cuts agreed by members of Opec and a number of other nations led by Russia, a grouping often called Opec+.
Overall, it said Opec members have about 2.8 million bpd of spare production capacity, with much of it being similar in quality to oil produced in Venezuela, which means it could be used without much, if any, adjustment by refineries.
“Therefore, in the event of a major loss of supply from Venezuela, the potential means of avoiding serious disruption to the oil market is theoretically at hand,” said the IEA, adding that “production cuts have increased the spare capacity cushion”.
The agency, which advises oil-consuming nations on energy issues, said that thanks to bigger-than-promised cuts by Saudi Arabia and its Gulf allies, the Opec+ effort to trim output was beginning to work.